Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has said that states will lose at least 50 per cent revenue if the collection of Value Added Tax (VAT) is decentralised.
He stated this in response to concerns raised by the Revenue Mobilisation Allocation and Fiscal Commission’s (RMAFC) regarding the VAT revenue-sharing formula outlined in the tax reform bills currently before the National Assembly.
He called on RMAFC to focus on finding a workable solution rather than causing more controversies
Oyedele, in a statement on Wednesday, pointed out that reforms are necessary to ensure Nigeria’s inclusive growth.
He called for constructive engagement to resolve disputes surrounding VAT administration, particularly the ongoing legal battle between Rivers and Lagos states and the federal government over the control of VAT.
According to him, VAT, introduced in 1993 to replace sales tax administered by states, is collected centrally for efficiency but remains fundamentally a state tax.
“Moving away from the central collection of VAT will not only lead to significant revenue loss of over 50% for all the states, they will also face challenges in collecting VAT as evident from the old sales tax regime administered by states and the consumption tax being collected currently by some states,” he stated.
Oyedele pointed out that under the current sharing formula, 85 per cent of VAT revenue is allocated to states, with the federal government retaining 15 per cent, despite generating a significant portion through import VAT and collections in the Federal Capital Territory (FCT).
He further explained that VAT revenue is held in a special pool account separate from other federation revenues and distributed without the involvement of the RMAFC, similar to stamp duties, which are allocated based on 100 per cent derivation to states.
He noted that the tax reform bills aim to resolve longstanding inequities in VAT distribution and address legal and practical challenges.
Oyedele also said there will be significant consequences if the Supreme Court rules in favour of Rivers and Lagos states to allow VAT collection at the state level.
He noted that while RMAFC previously conducted nationwide consultations on revenue-sharing formulas, VAT was excluded from these discussions despite its inequities.
“We are aware of various efforts by the RMAFC over the past decade including the nationwide consultation exercise on the review of the federation revenue sharing formula 3 to 4 years ago.
“Not only was VAT excluded from this exercise despite the apparent inequity in the distribution formula, the outcome of the revenue sharing consultation is yet to be concluded many years after.
“VAT administration is already under dispute, therefore seeking a political solution to avoid the risk of the tax being adjudged as a tax to be administered by states requires urgent action,” Oyedele added.
The committee chairman urged RMAFC to join the ongoing effort including consultation with key stakeholders to arrive at a generally acceptable outcome.
He, therefore, urged the commission to join the ongoing consultations with key stakeholders to develop a workable solution.
